Banks Don't Like Risks Associated With Legal Pot Business

Published Aug 4, 2017 at 3:26 PM

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In this June 27, 2017, photo, an employee weighs sifted pot leaves to make joints at the Higher Path medical marijuana dispensary owned by Jerred Kiloh in Los Angeles. On a typical day, $15,000 can change hands in Kiloh's dispensary, where a steady stream of customers pick from shelves stocked with products, from cannabis-infused lip balm to potent concentrates that look like thin sheets of amber-colored ice.

Billions of dollars are expected to flow through California's legitimate marijuana industry next year when recreational pot becomes legal, but most of those businesses won't be able to use banks.

The reason: Many banks don't want anything to do with pot money for fear it could expose them to legal trouble from the federal government, which still lists marijuana as illegal - and regulates the banking industry. There is particular uncertainty over how the Trump administration will react.

Because of those fears, pot dispensary operators in the 29 states where the drug is legal, either for medical or recreational purposes, often find themselves nervously handling obscene amounts of cash.

During the Obama administration, the Justice Department issued guidelines to help banks avoid federal prosecution when dealing with pot businesses in states where the drug is legal.

But most banks don't see those rules as a shield against charges that could include aiding drug trafficking. And they say the rules are difficult to follow, in effect placing the burden on banks to determine if a pot business is operating within the law.

For example, the Justice Department wants to make sure pot profits in states where marijuana is legal are not being funneled to gangs or cartels. Banks are unsure how to make such a determination.

The number of banks and credit unions willing to handle pot money is growing, but they still represent only a tiny fraction of the industry.Colorado tried in 2015 to set up a credit union to serve the marijuana industry but was blocked by the Federal Reserve. A court ruling last month could open the door for another attempt.

Elsewhere around the country, the Oregon Department of Revenue built a fortress-like office for dropping off and counting cash.

Some pot businesses have tried to open bank accounts by setting up management companies or nonprofit organizations with ambiguous names - in other words, by misleading the banks. But those accounts can be shut down if a bank realizes where the money is coming from.

"It is not normal for people to walk around with millions of dollars of cash. We have to deal with this reality," lamented Los Angeles City Council President Herb Wesson, who has proposed creating a municipal bank that would serve cannabis businesses.